UK hotel market will “rebound strongly”

By Bridging Loan Directory 16th April 2020

The UK hotel market is set to “rebound strongly” once the economy revives and travel restrictions are lifted post the Covid-19 pandemic, according to research by global property adviser Knight Frank.

The independent property consultancy is predicting a surge in investment volumes in Q4, and says that a full market recovery may be possible in London by Q4 2021, if the market reopens by the end of Q2 2020.

Knight Frank’s research analyses the speed at which the UK hotel market has recovered following major events in the past, such as the economic downturns in 2001 and 2009, SARS, and Brexit.

The unprecedented events of Covid-19 mean that the immediate economic impact is anticipated by many to be more severe than past economic downturns, with hotels likely to be disproportionately impacted due to the challenges coming from a period of lockdown.

Despite this, Knight Frank is forecasting a V-shaped, stepped recovery to follow, with occupancy growth stronger in the initial recovery phase, leading to a rebound in revenues per available room (RevPAR) once travel restrictions are eased and long-haul inbound visitors return.

This, according to Knight Frank, will then help to drive the average daily rate (ADR) growth, leading to an overall recovery for the UK hotel sector.

Shaun Roy, head of hotels and specialist property investment at Knight Frank, said:

“The Covid-19 pandemic is an unprecedented event and there is no doubt that this will have an impact on the UK hotel market, which is disproportionately affected in many ways.

We are currently in an enforced lock down, where the focus for the hotel market remains one of survival, with cash conservation and liquidity of immediate concern. Yet as we look beyond this, and at how the UK hotel market has fared following other significant global events, we believe that the UK hotel market will recover and rebound strongly.”

We predict that the market will bounce back following the relaxing of travel restrictions and the containment of the virus, leading to a potential full recovery in London and a gradual recovery in the regions as well as an uplift in investment volumes nationally.”

The UK hotel markets which have a strong international appeal, like London and Edinburgh, are likely to recover faster, with Knight Frank forecasting that the London market could potentially achieve a full market recovery by Q2 2021 if the hotel market reopens by the end of Q2 as a result of Covid-19 being contained and travel restrictions being eased.

However, Knight Frank is also predicting that the severity of the economic downturn will likely have a more lasting impact on the performance of the regional UK hotel market, as corporate budgets are likely to be squeezed, while the level of unemployment will dictate the disposable income available and therefore the propensity to spend on leisure-based experiences.

Knight Frank remains cautiously optimistic for the recovery of the UK hotel market in 2020, anticipating that a recovery plan will be focused on domestic demand, particularly in the regions.

This will likely be bolstered by the probable extended summer holiday period whilst schools remain closed until September and the easing of social distancing restrictions, combined with continued restrictions on international travel whilst individual countries deal with the widespread outbreak of Covid-19. This means that UK residents may opt to travel domestically rather than abroad. Once travel restrictions have eased, investment activity will resume and surge in Q4, owing to a time lag for due diligence.

In the immediate term, hotels are focused on cash conservation and liquidity to ensure their survival, which have been boosted by the range of fiscal measures implemented by the UK government, including the 12-month business rates holiday for the hospitality sector, and the ability to furlough staff for an initial period of up to three months.

Once restrictions on social distancing are eased, many hotels may delaying re-opening rather than opening as soon as the restrictions permit, so that they reopen once demand and occupancy has increased significantly, to ensure that any operating losses are less than the holding costs of keeping the hotels closed. Some of the larger chains, which have multiple hotels in the same geographic markets, are also likely to phase the opening of their hotels. Thos hotels which depend to a large extent on the meeting and conference segment, might well stay closed for prolonged period, while the UK workforce continues to work from home and events remain postponed and cancelled.